economics: chapter 3

demand

the desire to own something and the ability to pay for it

law of demand

consumers will buy more of a good when its price is lower and less when its price is higher

quantity demanded

the amount that people are willing and able to buy

income effect

the change in consumption that results in response to change in prices

demand schedule

a table that lists the quantity of a good that a person will purchase at various prices in a market

market demand schedule

a table that lists the quantities demanded of a good at various prices by all consumers in the market

demand curve

a graphic representation of a demand schedule

complements

two goods that are bought and used together

substitutes

goods that are used in place of one another

elasticity of demand

a measure of the way quantity supplied reacts to a change in price

inelastic

describes demands that is not very sensitive to price changes (e<1)

elastic

describes demands that is not very sensitive to price changes (e>1)

unitary elastic

describes demands whose elasticity is exactly equal to one

supply

the amount of a good or service that is available

law of supply

the amount of a good or service that is available

quantity supplied

the amount of a good or service that a producer is willing and able to supply at a specific price

supply schedule

a chart that lists how much of a good or service at various prices

market supply schedule

a chart that lists how much of a good or service all suppliers will offer at various prices

supply curve

a graph of the quantity supplied of a good or service at various prices

market supply curve

a graph of the total quantity supplied of a good or service by all suppliers at various prices

elasticity of supply

a measure or the way quantity supplied reacts to a change in price

fixed costs

a cost that does not change no matter how much of a good or service is produced

variable costs

a cost that rises or falls depending on the quantity produced

marginal costs

the extra cost of adding one unit

subsidy

a government payment that supports a busniness or market

equilibirum

the point at which the demand for a product or service is equal to the supply of that product or service

disequilibrium

any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market

shortage

a situation in which consumers want more of a good or service than producers are willing to make available at a particular price

surplus

when quantity supplied is more than quantity demanded

price ceiling

a maximum price that can legally be charged for a good or service

price floor

a minimum price for a good or service

black market

a market in which goods are sold illegally, without regard for government controls on price or quantity

the substitution effect

consumer reacts to a rise in price of one good by consuming less of that good and more of a substitute good